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24 Years Old, $2 Million in the Hole

So, have you heard the one about the 24-year-old "real estate investor" who's $2 million in debt and still hasn't gone back to his day job? No? Alas, you may never get the full story. Last week, a Californian named Casey Serin started a blog called "Iamfacingforclosure.com," detailing how he got himself half a dozen sinking properties and $2 million in debt. By today, he'd pulled it off the Net, with good reason.

The quick version of the story is this. After taking some courses in real estate investing, this eager kid lied his way into a slew of loans he, admittedly, didn't deserve, and now that he's bleeding to the tune of $20,000 a month, and the housing market is crashing around his ears, he thought taking his story to the Web might somehow help.

A part of me still wonders whether or not this wasn't just a somewhat elaborate hoax, but if it's not, this kid is in deep trouble. Admitting to serial lying on loan applications might be enough to get forgiveness from our short-attention-span society, and it might get you a few "attaboys" from the easily impressed. But I doubt this kind of naive, public forthrightness will serve Casey so well should any of these lenders haul him into court for fraud. (For those who just have to see what was there, a few Web searches will still turn up cached pages.)

Denial: Not an African waterwayEven if this is/was just a piece of Web 2.0 performance art, it's not too tough to believe that there are other people in the same situation. If you read between the "Dude, you're going to jail" comments on the site, you might have gotten the uneasy feeling, as I did, that the lesson's not sinking in.

Try this on for size. "You can't buy this kind of experience," wrote one reader. "Seriously it's not the end of the world. No one who ever amounted to anything did it first crack out of the box." It wasn't the only comment along those lines.

With attitudes like this so prevalent, why don't I believe things are going to clear up for people like this any time soon?

Well, let's back up a step. If the information on that blog was genuine, Countrywide Financial (NYSE: CFC) and Citigroup (NYSE: C) made some very stupid loans. If Countrywide did, as alleged, make two loans to an overextended "self-employed" 24-year-old with nearly zero assets, will anyone else out there be surprised if its loan book becomes absolutely rank in a few months?

Greed makes you stupidOn a more philosophical level, here's the real problem: People can't help themselves when they think they know how to get rich quick. How quickly they forget. In 1999 and 2000, everyone was a tech-stock wizard. Everyone knew that the bandwidth appetite would keep Cisco (Nasdaq: CSCO) stock shooting toward the moon. Everyone knew that the emphasis on network architecture would make Sun Microsystems (Nasdaq: SUNW) the next IBM (NYSE: IBM) , only better.

Of course, the crash proved that the only thing we really had was a rising tide floating all those boats. And it receded at warp speed, leaving plenty of amateurs stuck in the muck. I suspect we're going to see a similar problem in real estate, as more amateur flippers like Casey find themselves backed into a corner. The difference is that this might take longer to unwind, and the consequences could be a lot worse.

After all, real estate isn't so liquid. Sellers anchor to what they paid. Buyers have no reason to rush in at the front end of the crash. Incentive schemes dreamed up by realtors, sellers, and homebuilders like Ryland (NYSE: RYL) prop up prices. Lennar (NYSE: LEN) keeps building despite the writing on the wall. As a result, it will be months before we see a real "correction."

Moreover, unlike most amateur stock players, who are only gambling with cash on hand, the new real estate speculators depend on huge slugs of leverage. Lose everything on your pile of tech stocks, and you're back to zero. Lose everything on leveraged real estate, and you move deep into negative territory. There's nothing like owing $600,000 on a home that's now worth $470,000 to make you wonder why they invented the option ARM, or the 40-year mortgage. You think it was to do you any favors?

Foolish bottom lineLet me break it down for you. If you're a twentysomething out to make it big in the world, do yourself a favor and slow down. If you're wearing flip-flops and low-riding jeans to closing, I'm talking to you. Real riches come over time, not overnight. You need to start with a clean financial house, make smart bets, and save your money sensibly.

Twenty-four years old and $2 million in debt is no way to start your future. It's amazing to me that anyone could ever think otherwise.

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At the time of publication, Seth Jayson had no positions in any company mentioned here. View his stock holdings and Fool profile here. See what he's Digging these days. Fool rules are here.

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